California Apparel News

Note to retailers: Don’t pump up those inventories this year. And don’t get too wild in hiring new people.

Industry observers note that the economy has taken a few hits recently, which means shoppers might be a tad more cautious for a while as they examine their pocketbooks.

Gasoline prices, hovering between $3.20 and $3.25 per gallon, are gobbling up more of consumers’ disposable income.

And the meltdown of the sub-prime mortgage market is shrinking the employment rolls around Southern California, particularly in Orange County, where New Century Financial Corp., the country’s No. 2 lender to borrowers with weak credit, filed for Chapter 11 bankruptcy protection on April 2. The Irvine, Calif.–based company, which last year had $60 billion in loans, fired 3,200 people, or about half its work force. Foreclosures are expected to increase the rest of this year and next year.

“We still see positive growth in the apparel industry, but it is not as strong as it has been in the last couple of years,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif. “Our message to retailers is, ’Do not build up inventory too much, and don’t hire too many workers.’ The good news for the remainder of the year is, we don’t see a recession.”

In a recent economic report, the Los Angeles County Economic Development Corp. predicted that taxable retail sales in the state should grow about 5.9 percent this year compared to 6 percent last year. That should bump up to 6.1 percent in 2008.

The winners in the retail circle are those who are taking a fashionforward approach to their stores instead of stocking basics. “I’ve seen that those retailers that have gone in for more fashion versus basics seem to be getting the business,” said Bruce Berton, director of international business consulting at Los Angeles accounting firm Stonefield Josephson Inc. “With the Project [Global Trade] Show at MAGIC [in Las Vegas], all of a sudden specialty stores are carrying variations of something new, which is healthy.”

Retail employment numbers in California have improved slightly. In February 2007, there were 54,000 people employed in clothing and accessories stores compared to 52,000 in February 2006, said Jack Kyser, chief economist at the LAEDC.

At California department stores, 44,700 people were employed in February 2007 compared to 44,100 a year earlier.

In a recent report by Rosalind Wells, an economist at the National Retail Federation in Washington, D.C., apparel and accessory sales were expected to do fairly well this year while big-ticket items associated with the housing market, such as appliances and furniture, were predicted to be weak. Those selling health and personal-care items should do better than most because they cater to income-heavy baby boomers in search of the fountain of youth.

Retailers with Web sites should also fare well. “Superior growth will once again be achieved by online shopping as sites become increasingly user-friendly and consumers become more comfortable using them,” Wells wrote.

Slim and trim

While people will still be buying clothes this year, apparel manufacturers might have a harder time maintaining their gross margins as manufacturing prices in China continue to rise. Also, California’s hourly minimum wage went from $6.75 to $7.50 at the beginning of this year. “Companies are going to have to become more professional or they are going to see margins eaten away in the cost of goods and how they service their customer,” Berton said.

Cost-saving devices include putting warehouses and infrastructure closer to sourcing points to be able to deliver goods more quickly. Some people will have to think about expanding their sourcing options. And others should start integrating computer software programs to track their apparel production more accurately.

There is an incredibly large batch of new start-up companies out there, Berton said. Many will make it, and others won’t. It depends on their business acumen.

Particularly murky, according to Berton, is the future of the high-end denim market in Southern California.

“What I do worry about is the so-called domestic premium- denim houses. I question how many more can enter into that field and where is the price point really going to fall to and who is going to be weeded out,” Berton said.

“Some of those people are going to have to go offshore to get better pricing.”

Meanwhile, the number of workers in Los Angeles County’s apparel manufacturing industry again declined slightly, perhaps a sign that the decline is almost over, Kyser said.

In February 2007, there were 59,200 people working in apparel factories in Los Angeles County compared with 59,600 last year. In textile mills, there were 10,000 employed in February 2007 compared with 10,600 a year earlier. And there were 18,200 workers in apparel wholesaling compared with 18,700 last year.

“If you talk to people in retail, people are still out there shopping, and the regional economy is doing really rather well in terms of job creation,” Kyser said.